Denver independent QEP Resources Inc. has boosted its oil, natural gas and liquids production outlook for the year on over-the-top performance in the Permian Basin, which exceeded all expectations during the third quarter.

During a conference call on Thursday to discuss quarterly results, CEO Tim Cutt credited the strong Permian performance to a revamped enhanced flowback and artificial lift strategy, as well as improved timing of fractures to first production. 

Overall production guidance for 2019 has been increased by 6% from previous guidance at the midpoint to 32-32.6 million boe. Oil output guidance now is set at 21.6-21.9 million bbl, up 0.5 million bbl. Natural gas volumes are expected to be 32.4-Bcf, a 13% increase at the midpoint, and natural gas liquids should increase to 5-5.2 million bbl.

“Oil and condensate production in the Permian Basin increased by 20% from the second to third quarter of 2019,” Cutt said. “Permian gas sales remained higher than forecast, given our focus on environmental stewardship and the resulting reduction of flared volumes.”

Fourth quarter and full-year 2019 guidance is assuming a $55/bbl oil price and $2.50/MMBtu for natural gas. QEP also plans to recover ethane from its produced gas in the Permian when processing economics support it.

As production has risen, capital costs are coming down.

“The team’s continued strides and cost reduction and improved efficiencies position us to lower our 2019 capital guidance by an additional $15 million at the midpoint,” Cutt said. In addition, general/administration spending guidance was cut by $5 million for the year.

“Operational performance during the third quarter in all categories was in line with or better than guidance,” Cutt said. Permian output “exceeded our expectations” as the company’s most recent drilling spacing units outperformed.

“Our strong operational performance, coupled with continued focus on operating expenses, resulted in QEP being free cash flow positive in the third quarter and positions the company to generate significant free cash flow in the fourth quarter,” said the CEO.

With the solid performance to date, QEP plans to run only one fracture crew in the Permian going into 2020 to support a three- to four-rig program.

“Based on our planned two-rig program, we expect drilling activity to continue year-round in the basin, with new wells being completed and put on production in the first three quarters of the year,” Cutt said.

In QEP’s other major operating area, the Williston Basin, plans are to do most of the drilling in the first quarter, while completions would be weighted to the warmer months from April to September “to ensure lower completion and construction costs.

“This operational seasonality will mean the capital spend during the first half of the year will be significantly higher than the second half of the year, and volumes will generally peak in the third quarter,” Cutt said.

“We understand that this nonlinear trajectory is a departure from the past, but it is extremely important to understand the seasonality as we transition to our development program that consumes less capital and delivers positive annual free cash flow at $50/bbl overall.”

Cutt also highlighted the reduction in the management officer headcount, which has been cut by 60% from 2018.

Ten-year veteran CFO Richard Doleshek is retiring at the end of the year. Vice President Bill Buese, who oversees finance/treasury, will take the CFO post. The finance/treasury position would be eliminated, Cutt said.

Net income in 3Q2019 was $81 million (34 cents/share) up from year-ago profits of $7.3 million (3 cents).